Abu Dhabi throws a lifeline to sinking Dubai
The UAE's best laid plans, however, could come under pressure if Dubai's debt proves to be heavier than it is being made out to be
Sanjay Kapoor Dubai
Cruising on a fully automated driver-less Dubai Metro can be a heady experience till someone points out the innumerable carcasses of deathly recession that have hammered this desert kingdom. The Rashidya-Jebel Ali elevated metro line, longer than the Vancouver sky train, runs parallel to the speedways that whiz past many of the famous Dubai landmarks like the Burj-al-Dubai. Everything looks normal, but a surreal element envelops the terrain when passengers casually point out the 'to let' signs hanging on the buildings or the mass of cars parked in an empty desert space.
Says a local journalist: "The entire buildings are up for rent. Have you seen anything like that?" He also points out at the cars left behind by fleeing expatriates who did not want to be incarcerated for defaulting on loans taken from the banks.
While expatriates could run away from their obligations and immerse into the nothingness that lies beyond the desert frontiers, there is no such luck for many of the Dubai companies like Dubai World that have been forced to default on their gargantuan debt.
Dubai's total debt is around $80 billion and if the misery of Dubai World and a construction company, Nakheel, is anything to go by, then the uncanny happenings in this small Sheikhdom could prove to be the proverbial black swan for the world economy, which is slowly clawing its way up from the deep debris and abyss of last year's meltdown. There are genuine fears that the Dubai defaults could once again trigger a sharp downward spiral in the world economy.
Dubai has been walking a tightrope since the Lehman brothers went broke last year. The easy money that sustained this over-leveraged re-trading desert megapolis suddenly started going up in smoke. Besides the ambitious metro train, Dubai's dream projects that celebrated greed, hedonism, big bucks and promised to catapult this affluent society to a different rarefied level like the Atlantis, Dubai World, The World, Dubai Marina, began to look broodingly nightmarish. The celebrities that spent their fortunes in buying a part of this outlandish, artificial dream world discovered that the sand was slipping out of their hands.
Indeed, buildings like the Atlantis and Burj-al-Dubai became the symbol of everything that was wrong with an economy that believed in making money from money and indulging in mindless diversification. So prohibitive was Dubai's real estate that it alienated many of those who came to work here. Many of them had to drive from long distances to work here.
Recession has brought about 40-50 per cent correction in real estate prices. After Dubai World's debt default and its cascading impact on other companies, there are fears that this city could get de-populated if the large expatriate population lose their jobs and begin to return home in an unprecedented exodus which will shake many economies, including that of India.
All this can perhaps be stalled if Abu Dhabi, the capital of United Arab Emirates, decides to underwrite Dubai's Himalayan debt and take matters in its own hand.
Since recession struck Dubai, Abu Dhabi has thrown a lifeline of $10 billion and made another provision of $5billion. During a recent trip to Abu Dhabi, Hardnews along with correspondents from other countries had a chance to interact with Vice President and Prime Minister of UAE and Ruler of Dubai, Muhammad bin Rashid Al Makhtoum. The meeting took place on November 19, a few days before the huge default by Dubai World, and did not provide any indication of what might follow.
Rashid Al Makhtoum was categorical that Dubai is part of the UAE and "they were one economy". His remarks made it amply clear that the UAE's ruling family would not allow Dubai to suffer or sink in penury and it would back it up with its ample resources generated from oil. The UAE swims on oil and gas and boasts of 4 per cent of the total global oil reserves. It also has plenty of gas.
The prime minister pointed out the extraordinary interests shown by investors in the rise in fortunes of the UAE. Visible was the shift from the inordinate focus Dubai enjoyed all these years to that of UAE as a nation. The ruler of Dubai was very happy with Dubai Metro and the continued support the city had been getting from tourists all over the world.
Central Bank Governor of UAE, Sultan Nasser Al Suwaidi, too, in his interaction, was cautious in his assessment about the recovery of the real estate sector in Dubai when he said it would be resolved over a period of time. He was, however, categorical that UAE had "overcome the liquidity problem" in the wake of the global financial crisis.
There was no hint that that debt default would hit a company that had a major stake of the UAE family. All along the interaction, there was no suggestion of nervousness or unease over what was playing out in neighbouring Dubai. The UAE leadership looked assured and confident of tiding over any crisis that may hit their kingdom. Suwaidi denied any attempts to shift from their currency's peg to dollar to any other currency.
From the declamations of the UAE leadership, it was clear that Abu Dhabi was being positioned as an inheritor of Dubai as the foremost Arabian destination. They showcased the projects that were coming up in Abu Dhabi that would catapult this city of many islands as the cultural hub of the Middle East, the most significant being the island of Saadiyet, or happiness.
Here, the UAE is setting up the Louvre and Guggenheim art museums. To be housed in buildings that are redefining contemporary architecture, Saadiyet hopes to bring together art, artists and connoisseurs to this island. Even the Abu Dhabi Palace, recently, was the venue of an extraordinary Art Summit where some of the finest works from all over the world were placed. In Abu Dhabi, at least, there was no hint of slowdown.
Abu Dhabi has also built a fabulous facility for Formula1 racing in YAS Island, which lies almost midway on the road to Dubai. The first F1 race in November attracted 45,000 tourists to this amazing town. Designed with the help of Ferrari and other experts of Formula racing, the YAS Island on the face of it raises many questions about its viability when no races are taking place, but the handlers of this F1 town are not worried on this count. They have a racing calendar that has 8 races and they believe that it is enough to make the YAS Island make pots of money.
Dreams that seemed bizarre and outlandish for a city like Dubai look easy in Abu Dhabi due to plentiful foreign exchange and gold reserves. Would such aggressive diversification that hurt Dubai bleed Abu Dhabi, too? All those who Hardnews spoke with were categorical that different fundamentals work for both the economies.
To reiterate this point, the CEO of Masdar, Dr Sultan Al Jaber, was categorical that the UAE was working towards reducing its dependence on fossil fuel by creating a totally carbon neutral waste free city. The Masdar enterprise will look for solutions to hydrocarbon based energy systems by investing its colossal $15 billion corpus in Research and Design of renewable options. A response to global initiative towards finding climate friendly urban systems, Masdar is really a path-breaking effort. Global slowdown had delayed this project, but Dr Jaber made it clear that the work was on course.
Leavened by its riches and accolades that are coming its way, Abu Dhabi is taking steps to usher greater democracy in its decision-making process. Abdul Aziz Ghurair, Speaker of the House, Federal National Council, outlined the plans of the UAE to enlarge the electoral college and the number of representatives.
Abu Dhabi has also been praised for the freedom that it allows its media. The National, the recently launched daily, stands out for its editorial and design, shaking up the media scene in this Gulf State.
The UAE's best laid plans, however, could come under pressure if Dubai's debt proves to be heavier than it is being made out to be. Post recession, most of the big cranes from Dubai's building sites have shifted to UAE's capital. And, it would be tragic for this new El-Dorado of the Gulf if this move also brings new and insurmountable problems.